USPS Has Been Overcharged 75 Billion, per OIG Study

January 20, 2010
New OIG Study Estimates USPS Has Been Overcharged for the
CSRS Pension Fund by $75 Billion
A study just released by the U.S. Postal Service’s Office of Inspector General (OIG)
shows that the current system of funding the Postal Service’s Civil Service Retirement
System pension responsibility is inequitable and has resulted in the Postal Service
overpaying $75 billion to the pension fund. The OIG estimates that if the overcharge
was used to prepay the Postal Service’s health benefits fund, it would fully meet all of
the Postal Service’s accrued retiree health care liabilities and eliminate the need for the
required annual payments of more than $5 billion. Also, the health benefits fund could
immediately start meeting its intended purpose -- paying the annual payment for
current retirees, which was $2 billion in 2009.
This marks the third time the Postal Service has been overcharged. In 2002 it was
determined the Postal Service would overfund CSRS by $78 billion. Legislation in 2003
corrected this overfunding. Then it was determined the Postal Service was overcharged
$27 billion for CSRS military service credits. In 2006 these funds were returned to the
Postal Service by Congress, and the surplus was used to fund retiree health care
liabilities.
This study, The Postal Service’s Share of CSRS Pension Responsibility, undertaken in
conjunction with the Hay Group, is the third paper sponsored by the OIG that delves
into the financial entanglements between the Postal Service and the federal
government -- generally at the expense of the Postal Service. The latest study describes
the inequitable allocation of CSRS costs between the federal government and the Postal
Service. The other two reports focus on the Postal Service’s congressionally-mandated
retiree health care prefunding payments (Estimates of Postal Service Liability for Retiree
Health Care Benefits), and the Postal Service’s interaction with the federal budget
(Federal Budget Treatment of the Postal Service).
In this newly released paper, the OIG and Hay Group’s analysis demonstrates that the
method used to determine how CSRS pension costs for postal employees with service
before 1971 are split between the Postal Service and the federal government is
inequitable. As a result, the Postal Service was overcharged by $75 billion for payments
to CSRS retirees from 1972 to 2009. The OIG suggests that this amount be returned to
the Postal Service’s CSRS pension fund. Any excess above what is needed to fund CSRS
liabilities could then be transferred to the Postal Service’s retiree health care fund,
which would fully fund its health care liability and eliminate the need for further
congressionally-required payments to the fund. All of the Postal Service’s current
pension and health care obligations to its employees would then be fully funded.
The report further illustrates the inequity in the methodology used to determine the
Postal Service’s contribution to the CSRS fund. Key findings from the report:
• Hay Group demonstrates that the method of splitting CSRS pension costs for postal
employees with service before 1971 between the Postal Service and the federal
government is inequitable, because the Postal Service is made responsible for all
salary increases after 1971.
• In effect, OPM calculates the federal government’s share for these employees as if
they retired in 1971 at their much lower 1971 salaries. An allocation methodology
that burdens the Postal Service with all post-1971 pay increases is not reasonable.
• As an example, Hay Group shows that the Postal Service could be charged
70 percent instead of 50 percent of the pension costs for employees who worked
half their careers with the Post Office Department and half with the Postal Service.
• Because of the inequitable split, the Postal Service was overcharged $75 billion from
1972 to 2009.
The report also offers solutions:
• Fixing the split by using a more equitable years-of-service approach would leave the
Postal Service with $75 billion more in assets as of the end of 2009. The CSRS
pension fund is currently underfunded by $10 billion, so the resulting pension
surplus would equal $65 billion.
• The $65 billion pension surplus could be added to $35 billion already set aside in the
retiree health benefits fund for a total retiree health fund balance of $100 billion.
• A fund balance of $100 billion is more than enough to fully fund accrued retiree
health benefit liabilities of $87 billion. No further payments to the fund would be
needed to cover this liability.
• The current annual payments of more than $5 billion mandated by the Postal
Accountability and Enhancement Act (PAEA) could end.
• Payments for the premiums of current retirees could start to come from the fund
immediately.
• The annual evaluation of the Postal Service’s retiree health benefit assets and
liabilities would continue, and the Postal Service could be assessed if there were
any unfunded liability.
This report takes on increasing significance as the Postal Service faces a challenging
future. When the Postal Service was established, it was intended to be self-sufficient.
Clearly delineating and separating the Postal Service’s responsibilities from those of the
federal government will help in determining the true costs of funding postal operations.
Citizens and businesses should pay no less and no more than what is required to fund
the Postal Service’s operations.


Here is the link to the OIG: http://www.uspsoig.gov/ (it is on their front page)

Full report: http://www.uspsoig.gov/foia_files/RARC-WP-10-001.pdf